SEC Suspends Public Accountants for Bad Auditing

The Securities and Exchange Commission today suspended five accountants and two audit firms from practicing or appearing before the SEC after they violated key rules that are designed to preserve the integrity of the financial reporting system.

According to the SEC’s orders instituting settled administrative proceedings, the accountants and firms at various times performed deficient audits of public companies, jeopardized the independence of other audits, and falsified and backdated audit documents among other misconduct.

“Auditors must follow the professional standards and avoid conflicts of interest when they opine on the financial information reported by public companies,” said Paul G. Levenson, Director of the SEC’s Boston Regional Office. “These accountants and their firms showed complete disregard for the basic rules of their profession. As a result, they are now barred from working on any SEC-related matters.”

According to the SEC’s orders finding violations by Peter Messineo and his firm Messineo & Co., Charles Klein and his firm DKM Certified Public Accountants, Robin Bigalke, Joseph Mohr, and Richard Confessore:

• Messineo and his firm, which had more than 70 corporate clients, skipped mandatory quality reviews for their own audits and performed deficient quality reviews for audits by another audit firm.
• To cover up these violations, Bigalke falsified and backdated audit documents in her role as Messineo & Co.’s senior accountant. She also arranged with Mohr, the firm’s quality reviewer, the backdating of quality review documents.
• Mohr falsely identified himself as a certified public accountant during a time when was not licensed as a CPA.
• Messineo served as the CFO of two public companies being audited by Klein and DKM. Messineo falsely certified the companies’ public filings despite knowing that auditor independence rules were being violated as Confessore was improperly serving conflicting roles as a member of the DKM audit team and an employee of Messineo & Co.
• After Messineo resigned from his CFO positions at both public companies, he merged his audit firm into DKM and exacerbated DKM’s independence issues because he retained ownership interests in the two companies while DKM continued to audit them.

The SEC’s orders find that the accountants and firms violated or caused violations of Sections 13(a), 13(d), 15(d), and 16(a) of the Securities Exchange Act of 1934 and Rules 13a-1, 13a-13, 13a-14, 13d-1, 13d-2, 15d-1, and 16a-3 as well as Rule 2-02 of Regulation S-X. The order also finds they engaged in improper professional conduct pursuant to Section 4C(a)(2) of the Exchange Act and Rule 102(e)(1). They consented to the orders without admitting or denying the findings.

Messineo and his firm Messineo & Co. are permanently barred from practicing as accountants on behalf of any publicly traded company or other entity regulated by the SEC. Klein, Confessore, and DKM are suspended from appearing or practicing before the SEC as accountants for at least two years. Mohr is suspended for at least four years and Bigalke is suspended for at least three years. They are collectively paying penalties and disgorgement totaling more than $100,000 to settle the SEC’s charges.

SEC Charges Bank Holding Company in Delaware with Improper Accounting and Disclosure of Past Due Loans

The Securities and Exchange Commission recently announced accounting and disclosure fraud charges against a Delaware-based bank holding company for failing to report the true volume of its loans at least 90 days past due as they substantially increased in number during the financial crisis.

An SEC investigation found that as the real estate market declined in 2009 and 2010 and its construction loans began to mature without repayment or completion of the underlying project, Wilmington Trust Company did not renew, extend, or take other appropriate action for 90 days or more on a material amount of its matured loans. Instead of fully and accurately disclosing the amount of these accruing loans as required by accounting guidance, Wilmington Trust improperly excluded the matured loans from its public financial reporting.

Wilmington Trust, which was acquired by M&T Bank in May 2011, has agreed to pay $18.5 million in disgorgement and prejudgment interest to settle the SEC’s charges.

According to the SEC’s order instituting a settled administrative proceeding, Wilmington Trust omitted from its disclosures in the third and fourth quarters of 2009 approximately $338.9 million and $330.2 million, respectively, in matured loans 90 days or more past due. Instead, it disclosed just $38.7 million in such loans for the third quarter and only $30.6 million in its annual report following the fourth quarter. Wilmington Trust also materially misreported this category of loans in the first and second quarters of 2010. Furthermore, Wilmington Trust failed to accurately disclose during the second half of 2009 the amount of non-accruing loans in its portfolio, and materially understated its loan loss provision and allowance for loan losses during this same period.

Wilmington Trust consented to the entry of the order finding that it violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 as well as the reporting, books and records, and internal controls provisions of the federal securities laws. In addition to the monetary sanctions, Wilmington Trust agreed to cease and desist from committing or causing any violations and any future violations of these provisions.

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With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation,, accounting negligence and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

California-Based Telecommunications Equipment Firm and Two Former Executives Charged in Revenue Recognition Scheme

The Securities and Exchange Commission recently announced charges against a Newport Beach, Calif.-based telecommunications equipment company and two former executives accused of improperly recognizing as revenue more than a million dollars’ worth of inventory that was shipped to a Florida warehouse but not actually sold.

They’re also accused of defrauding an investor from whom they secured a $2 million loan for the company based on misstatements and omissions associated with the inventory shipments.

The SEC’s Enforcement Division alleges that AirTouch Communications Inc., former president and CEO Hideyuki Kanakubo, and former CFO Jerome Kaiser orchestrated a fraudulent revenue recognition scheme that violated Generally Accepted Accounting Principles (GAAP), which establish that revenue cannot be recognized unless it is “realized or realizable” and “earned.” When AirTouch reported net revenues of a little more than $1.03 million in its quarterly report for the third quarter of 2012, it included approximately $1.24 million in inventory that had been shipped to a company in Florida that agreed to warehouse AirTouch’s products in anticipation of future sales. AirTouch’s revenue recognition was improper because the Florida company had not purchased the inventory, and AirTouch had not sold the inventory to any of its customers. AirTouch would have had zero revenue to report for the quarter if it had not recorded the shipments as purported revenue from the Florida company.

According to the SEC’s order instituting an administrative proceeding, AirTouch develops and sells telecommunications equipment, including a product called the U250 SmartLinx that was designed in early 2012 for sale to Mexico’s largest provider of landline telephone services. Later that year, AirTouch contacted the Florida company about the possibility of it warehousing U250 SmartLinx units for potential future sale to the Mexican entity or other AirTouch customers. During contract negotiations for the warehousing arrangement, the CEO of the Florida company told Kanakubo that it would not buy the product from AirTouch, but rather warehouse the U250 SmartLinx inventory and provide logistics for eventual delivery to the Mexican entity or other AirTouch customers who purchased the product. AirTouch shipped approximately $1.24 million of inventory to the Florida company. Despite not receiving any payment from the Florida company or any commitment from the Mexican entity or any other customer that it would actually buy product, Kanakubo and Kaiser reported the shipped inventory as revenue on AirTouch’s Form 10-Q. They also signed certifications falsely attesting to the accuracy of the company’s financial results.

The SEC’s Enforcement Division further alleges that Kanakubo and Kaiser made false and misleading statements and omissions to an investor they solicited for a $2 million short-term bridge loan to the company in exchange for a promissory note and a warrant to purchase common stock. Among other things, Kanakubo falsely told the investor via e-mail that the inventory to be shipped by AirTouch to the Florida company pertained to an existing purchase order from the Mexican entity, and Kaiser did not disclose the existence of the agreement wherein the Florida company agreed merely to warehouse the inventory and provide associated fulfillment and logistics services. On Oct. 17, 2012, AirTouch received the loan of $2 million from the investor, and two days later Kanakubo approved a $15,000 bonus payment to Kaiser for his work on raising capital. The same day, Kanakubo authorized a $15,000 payment to himself in connection with unused vacation time.

According to the SEC’s order, Kanakubo, who lives in Irvine, Calif., and Kaiser, who lives in Chowchilla, Calif., withheld key information about the inventory shipments to the Florida entity from AirTouch’s board of directors and controller as well as its outside independent accountant.

The SEC’s order alleges that AirTouch, Kanakubo, and Kaiser violated the antifraud provisions of the federal securities laws, and asserts that Kaiser’s violations constituted willful conduct.

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With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

The Securities and Exchange Commission recently charged Ernst & Young LLP with violations of auditor independence rules that require firms to maintain their objectivity and impartiality with clients.

Ernst & Young agreed to pay more than $4 million to settle the charges.

The SEC’s order instituting a settled administrative proceeding finds that an Ernst & Young subsidiary lobbied congressional staff on behalf of two audit clients. Such lobbying activities were impermissible under the SEC’s auditor independence rules because they put the firm in the position of being an advocate for those audit clients. Despite providing the prohibited legislative advisory services on behalf of the clients, Ernst & Young repeatedly represented that it was “independent” in audit reports issued on the clients’ financial statements.

According to the SEC’s order, Ernst & Young’s subsidiary Washington Council EY (WCEY) impaired the firm’s independence in several lobbying actions:

• WCEY sent letters signed by a senior executive of an Ernst & Young audit client to congressional staff, urging passage of certain legislation.
• WCEY asked congressional staff to insert language into a bill that was favorable to the business interests of an Ernst & Young audit client.
• WCEY met with congressional staff in order to defeat legislation detrimental to the business interests of an Ernst & Young audit client.
• WCEY asked third parties to approach a U.S. senator in order to seek support for a legislative amendment sought by an Ernst & Young audit client.
• WCEY marked up a draft of a bill by inserting an Ernst & Young audit client’s language and sending it to congressional staff.

According to the SEC’s order, Ernst & Young had issued a written independence policy intended to provide guidance on the provision of legislative advisory services to audit clients. However, Ernst & Young did not provide WCEY with formal, in-person training specifically tailored to the policy.

The SEC’s order finds that Ernst & Young committed violations of Rule 2-02(b)(1) of Regulation S-X; caused violations of Section 13(a) of the Securities Exchange Act of 1934 and Rule 13a-1; and engaged in improper professional conduct pursuant to Exchange Act Section 4C(a)(2) and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice. The SEC’s order requires Ernst & Young to cease and desist from violating the auditor independence rules and from causing violations of the corporate periodic reporting provisions of the federal securities laws. The SEC also censured Ernst & Young and ordered payment of $4.07 million in monetary sanctions, including disgorgement of $1.24 million, prejudgment interest of $351,925.98, and a penalty of $2.48 million. The SEC took into consideration the remedial acts undertaken by Ernst & Young and its cooperation with SEC staff during the investigation. For example, Ernst & Young voluntarily issued new guidance in June 2012 restricting such legislative advisory services. The firm issued similar final guidance in May 2013.

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With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

The Securities and Exchange Commission recently announced fraud charges against three former senior managers of Regions Bank for intentionally misclassifying loans that should have been recorded as impaired for accounting purposes. As a result, the bank’s publicly-traded holding company overstated its income and earnings per share in its financial reporting.

The SEC also entered into a deferred prosecution agreement with Regions Financial Corp., which substantially cooperated with the agency’s investigation and undertook extensive remedial actions. Regions will pay a total of $51 million to resolve parallel actions by the SEC, Federal Reserve Board, and Alabama Department of Banking.

According to the SEC’s orders instituting administrative proceedings against the three former managers, Thomas A. Neely Jr. was the principal architect of the scheme while serving as head of Regions Bank’s risk analytics group in 2009. Along with the bank’s head of special assets Jeffrey C. Kuehr and chief credit officer Michael J. Willoughby, Neely took intentional steps to circumvent internal accounting controls and improperly classify $168 million in commercial loans as performing so Regions could avoid recording a higher allowance for loan and lease losses.

Kuehr and Willoughby agreed to settle the SEC’s charges by paying penalties of $70,000 apiece and consenting to bars from serving as officers or directors of public companies. The SEC’s Division of Enforcement will continue to litigate its case against Neely.

According to the SEC’s orders and the deferred prosecution agreement, Regions Bank tracked and recorded its non-performing loans (NPLs) for internal performance metrics and regular financial reporting. NPLs typically were placed on non-accrual status when it was determined that payment of all contractual principal and interest was 90 days past due or otherwise in doubt. Once a loan was placed in non-accrual status, uncollected interest accrued during that current year was reversed and Regions Bank’s interest income would be reduced. Non-accrual status also served as a trigger for Regions Bank to consider whether the specific loan was impaired and to determine an allowance for loan and lease losses in accordance with U.S. Generally Accepted Accounting Principles (GAAP).

The SEC’s Division of Enforcement alleges that when personnel within Regions Bank’s special asset department initiated procedures to place approximately $168 million in NPLs into non-accrual status during the first quarter of 2009, Neely arbitrarily and without supporting documentation required the loans to remain in accrual status. By failing to classify the impaired loans in accordance with its policies, Regions’ financial statements for the quarter ended March 31, 2009, were materially misstated and not in conformity with GAAP. In furtherance of the scheme, Neely and Willoughby knowingly provided understated NPL data for the quarter to the Regions’ CFO and other senior executives during a meeting in late March.

The SEC’s order against Neely charges him with violations of the antifraud, reporting, books and records, and internal controls provisions of the federal securities laws. Kuehr and Willoughby consented to the entry of a cease-and-desist order finding that they violated or caused violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 as well as the reporting, books and records, and internal controls provisions of the federal securities laws. Without admitting or denying the findings, Kuehr and Willoughby agreed to pay their respective $70,000 penalties plus be prohibited from serving as officers or directors of public companies for a period of five years.

The deferred prosecution agreement with Regions relates to the bank’s failure to maintain adequate accounting controls at the time. The agreement credits the company’s extensive remedial efforts, including the creation of a new problem asset division with entirely new management and significantly enhanced procedures. The agreement credits the substantial cooperation by Regions during the SEC’s investigation, and imposes a $26 million penalty that will be offset provided that the company pays a $46 million penalty assessed in the Federal Reserve’s action. Regions also will pay a $5 million penalty to the Alabama Department of Banking.

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With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

SEC Charges Manhattan-Based Private Equity Manager With Stealing $9 Million in Investor Funds:

The Securities and Exchange Commission recently charged a Manhattan-based private equity manager and his firm with stealing $9 million from investors in their private equity fund.

The SEC has obtained an emergency court order to freeze the assets of Lawrence E. Penn III and his firm Camelot Acquisitions Secondary Opportunities Management as well as another individual and three entities involved in the theft of investor funds.

The SEC alleges that Penn and his longtime acquaintance Altura S. Ewers concocted a sham due diligence arrangement where Penn used fund assets to pay fake fees to a front company controlled by Ewers. Instead of conducting any due diligence in connection with potential investments by Penn’s fund, Ewers’ company Ssecurion promptly kicked the money back to companies and accounts controlled by Penn so he could secretly spend investor funds for other purposes. For example, Penn paid hefty commissions to third parties to secure investments from pension funds. Penn also rented luxury office space and used the funds to project the false image that Camelot was a thriving international private equity operation.

According to the SEC’s complaint filed in federal court in Manhattan, Penn tapped into a network of public pension funds, high net worth individuals, and overseas investors to raise assets for his private equity fund Camelot Acquisitions Secondary Opportunities LP, which he started in early 2010. Penn eventually secured capital commitments of approximately $120 million. The fund is currently invested in growth-stage private companies that are seeking to go public.

The SEC alleges that Penn has diverted approximately $9.3 million in investor assets to Ssecurion. With the assistance of Ewers, who lives in San Francisco, Penn repeatedly misled the fund’s auditors about the nature and purpose of the due diligence fees. However, the scam began to unravel in 2013 when Camelot’s auditors became increasingly skeptical about the fees. In their haste to cover their tracks, Penn and Ewers brazenly lied to the auditors and forged documents as recently as July 2013, pretending the files were generated by Ssecurion.

The SEC’s complaint charges Penn, two Camelot entities, Ewers, and Ssecurion with violating the antifraud, books and records, and registration application provisions of the federal securities laws. The complaint seeks final judgments that would require them to disgorge ill-gotten gains with interest, pay financial penalties, and be barred from future violations of the antifraud provisions of the securities laws. The SEC’s complaint also charges another company owned by Ewers – A Bighouse Photography and Film Studio LLC – as a relief defendant for the purposes of recovering investor funds it allegedly obtained in the scheme.

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With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

Securities and Exchange Commission v. Michael H. Taber, CPA, Civil Action No. 13-mc-0282 (S.D.N.Y. filed Aug. 8, 2013)

SEC Awarded $400,000 in Disgorgement from Certified Public Accountant for His Violations of Commission Suspension Order

The Securities and Exchange Commission recently announced a court ruling that requires certified public accountant Michael H. Taber to pay the government $400,000 in compensation he received while suspended from appearing or practicing before the Commission as an accountant.

According to the SEC’s application filed in U.S. District Court for the Southern District of New York, Taber violated a 2004 Commission Order suspending him. The 2004 Order was based on a fraud injunction obtained against Taber, in SEC v. Del Global Techs. Corp., 04 CV 4092 (S.D.N.Y. filed June 1, 2004), for his participation in a fraudulent scheme as the chief financial officer of a New York-based company. While suspended, Taber repeatedly drafted, compiled, and edited information and data that was incorporated into requisite periodic reports that public companies filed with the SEC.

On October 3, 2013, the district court entered an order enforcing compliance by Taber with the 2004 Commission Order and directing the parties to submit their positions regarding disgorgement. On December 5, 2013, U.S. District Judge Katherine B. Forrest entered an order awarding the Commission $400,000 in disgorgement from Taber, who is licensed as a certified public accountant in New York and is currently a Florida resident.

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With extensive courtroom, arbitration and mediation experience and an in-depth understanding of securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

WHEN AN ACCOUNTANT FAILS TO EXERCISE REASONABLE AND ORDINARY CARE IN PREPARING THE FINANCIAL STATEMENTS OF HIS CLIENT AND WHERE THAT ACCOUNTANT PERSONALLY DELIVERS AND PRESENTS THE STATEMENTS TO A THIRD PARTY TO INDUCE THAT THIRD PARTY TO LOAN TO OR INVEST IN THE CLIENT, KNOWING THAT THE STATEMENTS WILL BE RELIED UPON BY THE THIRD PARTY IN LOANING TO OR INVESTING IN THE CLIENT, IS THE ACCOUNTANT LIABLE TO THE THIRD PARTY IN NEGLIGENCE FOR THE DAMAGES THE THIRD PARTY SUFFERS AS A RESULT OF THE ACCOUNTANT’S FAILURE TO USE REASONABLE AND ORDINARY CARE IN PREPARING THE FINANCIAL STATEMENTS, DESPITE A LACK OF PRIVITY BETWEEN THE ACCOUNTANT AND THE THIRD PARTY?

The Florida Supreme Court answered this question in the affirmative in the case of First Florida Bank, N.A. v. Max Mitchell & Co., 558 So. 2d 9 (Fla. 1990). In this matter, the court provided two examples to illustrate this circumstance.

(1): The court held that the Restatement (Second) of Tort § 552 governing information negligently supplied for the guidance of others has been adopted to apply to accountants so that when an accountant fails to exercise reasonable and ordinary care in preparing financial statements of the client and accountant personally delivers and presents statements to third party to induce that third party to loan or invest in client, knowing that statements will be relied upon by third party in loaning to or investing in client, accountant is liable to third party in negligence for damages third party suffers as a result of accountant’s failure to use reasonable and ordinary care in preparing financial statements, despite lack of privity (direct relationship) between accountant and third party.

(2): Accountant, who prepared audits without knowing they would be used to induce reliance of bank to approve line of credit for client, but who actually negotiated loan on behalf of client and personally delivered financial statements to bank with knowledge that it would rely upon them in considering to make loan, was liable to bank in negligence for damages bank suffered as a result of accountant’s failure to use reasonable and ordinary care in preparing financial statements, despite lack of privity.

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With extensive courtroom, arbitration and mediation experience and an in-depth understanding of accounting, negligence and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

The Securities and Exchange Commission recently announced charges against two Tampa-area investment advisers accused of committing fraud by failing to truthfully inform clients about compensation received from offshore funds they were recommending as safe investments despite substantial risks and red flags.

The advisers also are charged with contributing to violations of the “custody rule” that requires investment advisory firms to establish specific procedures to safeguard and account for client assets.

The SEC’s Enforcement Division alleges that Gregory J. Adams and Larry C. Grossman solicited and directed clients of their investment firm Sovereign International Asset Management to invest almost exclusively in funds controlled by an asset manager named Nikolai Battoo, who the SEC charged in a separate enforcement action last year. Grossman and Adams failed to inform clients about the conflict of interest in recommending these investments as Battoo was paying them millions of dollars in compensation for steering investors to his funds.

“Investment advisers have a fiduciary duty to act in utmost good faith when recommending investments, and they must fully disclose all of the relevant facts to their clients,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office. “Adams and Grossman breached this duty when they misstated their compensation and failed to disclose serious conflicts of interest.”

According to the SEC’s order instituting administrative proceedings, Grossman was paid approximately $3.3 million and Adams received $1 million in the undisclosed compensation arrangements. Grossman and Adams promoted the investments as safe, diversified, independently administered and audited, and suitable for the investment objectives and risk profiles of their clients who were often retirees. However, Battoo’s funds were in fact risky, lacked diversification, and lacked independent administrators and auditors. Grossman and Adams also failed to investigate – and in some cases wholly disregarded – numerous red flags surrounding Battoo and his funds.

The SEC’s Enforcement Division alleges that Grossman and Adams aided and abetted Sovereign’s violations of the custody rule when they instructed clients to transfer their investment funds to a bank account controlled by a related entity. Grossman and Adams pooled clients’ money in this bank account before investing it in Battoo’s offshore funds. Sovereign failed to comply with the custody rule, which requires an investment adviser to comply with surprise examinations or certain other procedures to verify and safeguard client assets.

According to the SEC’s order, Grossman and Adams willfully violated Section 17(a)(2) of the Securities Act of 1933, Section 15(a) of the Securities Exchange Act of 1934, and Sections 206(1), 206(2), 206(3) and 207 of the Investment Advisers Act of 1940. They willfully aided and abetted violations of Section 15(a) of the Exchange Act and Section 206(4) of the Advisers Act and Rules 204-3 and 206(4)-2.

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With extensive courtroom, arbitration and mediation experience and an in-depth understanding of securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

An “Annual Report” is a record of a corporation’s annual financial condition that is required to be distributed to shareholders under Securities and Exchange Commissions rules and regulations. Included in the report is a description of the company’s operations as well as its certified balance sheet and income statement. The full version of the annual report is called the 10-K. It is available from the company or or on-line at the Edgar Website of the SEC. Other reports issued by a reporting company include forms 10-Q (quarterly reports) and 8-K (material disclosures).

As an investor, these reports provide invaluable information when considering to purchase, hold or sell a security. However, please keep in mind that this information is being provided for educational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon as legal or investment advice. If the reader has any questions concerning this post, you should contact a qualified professional.

Contact Us:

With extensive courtroom, arbitration and mediation experience and an in-depth understanding of securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

The Securities and Exchange Commission (Commission) recently charged JPMorgan Chase & Co. with misstating financial results and lacking effective internal controls to detect and prevent its traders from fraudulently overvaluing investments to conceal hundreds of millions of dollars in trading losses.

The SEC previously charged two former JPMorgan traders with committing fraud to hide the massive losses in one of the trading portfolios in the firm”s chief investment office (CIO). The SEC”s subsequent action against JPMorgan faults its internal controls for failing to ensure that the traders were properly valuing the portfolio, and its senior management for failing to inform the firm”s audit committee about the severe breakdowns in CIO”s internal controls.

JPMorgan has agreed to settle the SEC”s charges by paying a $200 million penalty, admitting the facts underlying the SEC”s charges, and publicly acknowledging that it violated the federal securities laws.

As part of a coordinated global settlement, three other agencies also announced settlements with JPMorgan: the U.K. Financial Conduct Authority, the Federal Reserve, and the Office of the Comptroller of the Currency. JPMorgan will pay a total of approximately $920 million in penalties in these actions by the SEC and the other agencies.

According to the SEC”s order instituting a settled administrative proceeding against JPMorgan, the Sarbanes-Oxley Act of 2002 established important requirements for public companies and their management regarding corporate governance and disclosure. Public companies such as JPMorgan are required to create and maintain internal controls that provide investors with reasonable assurances that their financial statements are reliable, and ensure that senior management shares important information with key internal decision makers such as the board of directors. JPMorgan failed to adhere to these requirements, and consequently misstated its financial results in public filings for the first quarter of 2012.

According to the SEC”s order, in late April 2012 after the portfolio began to significantly decline in value, JPMorgan commissioned several internal reviews to assess, among other matters, the effectiveness of the CIO”s internal controls. From these reviews, senior management learned that the valuation control group within the CIO – whose function was to detect and prevent trader mismarking – was woefully ineffective and insufficiently independent from the traders it was supposed to police. As JPMorgan senior management learned additional troubling facts about the state of affairs in the CIO, they failed to timely escalate and share that information with the firm”s audit committee.

Among the facts that JPMorgan has admitted in settling the SEC”s enforcement action:

• The trading losses occurred against a backdrop of woefully deficient accounting controls in the CIO, including spreadsheet miscalculations that caused large valuation errors and the use of subjective valuation techniques that made it easier for the traders to mismark the CIO portfolio.
• JPMorgan senior management personally rewrote the CIO”s valuation control policies before the firm filed with the SEC its first quarter report for 2012 in order to address the many deficiencies in existing policies.
• By late April 2012, JPMorgan senior management knew that the firm”s Investment Banking unit used far more conservative prices when valuing the same kind of derivatives held in the CIO portfolio, and that applying the Investment Bank valuations would have led to approximately $750 million in additional losses for the CIO in the first quarter of 2012.
• External counterparties who traded with CIO had valued certain positions in the CIO book at $500 million less than the CIO traders did, precipitating large collateral calls against JPMorgan.
• As a result of the findings of certain internal reviews of the CIO, some executives expressed reservations about signing sub-certifications supporting the CEO and CFO certifications required under the Sarbanes-Oxley Act.
• Senior management failed to adequately update the audit committee on these and other important facts concerning the CIO before the firm filed its first quarter report for 2012.
• Deprived of access to these facts, the audit committee was hindered in its ability to discharge its obligations to oversee management on behalf of shareholders and to ensure the accuracy of the firm”s financial statements.

The SEC”s order requires JPMorgan to cease and desist from causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 13a-11, 13a-13, and 13a-15. The order also requires JPMorgan to pay a $200 million penalty that may be distributed to harmed investors in a Fair Fund distribution.

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With extensive courtroom, arbitration and mediation experience and an in-depth understanding of securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

The Securities and Exchange Commission (“Commission”) recently charged the operator of the largest hospital in Miami-Dade County with misleading investors about the extent of its deteriorating financial condition prior to an $83 million bond offering.

An SEC investigation found that the Public Health Trust, which is the governing authority for Jackson Health System, misstated present and future revenues due to breakdowns in a new billing system that inaccurately recorded revenue and patient accounts receivable. The Public Health Trust projected a non-operating loss in the official statement accompanying the bond offering in August 2009, but reported a figure that was more than four times lower than what was ultimately reported at the end of the 2009 fiscal year. The Public Health Trust also failed to properly account for an adverse arbitration award, and misrepresented that its financial statements were prepared according to U.S. Generally Accepted Accounting Principles (GAAP).

The Public Health Trust has agreed to settle the SEC’s charges.

According to the SEC’s order instituting settled administrative proceedings, the official statement accompanying the bond offering represented that the Public Health Trust (PHT) projected a $56 million non-operating loss for its fiscal year ending Sept. 30, 2009. Several months after the bonds were sold, external auditors discovered problems with the PHT’s patient accounts receivable valuation. This discovery required a large accounting adjustment to the reported net income, and the PHT ultimately reported a non-operating loss of $244 million for fiscal year 2009 – more than four times the projection made to bond investors.

The SEC’s order found that the PHT was aware of the rising level of patient accounts receivable and declining cash-on-hand prior to the bond offering, which caused concern among trustees and executive management. They raised questions about the accounts receivable amounts and collection rates that were used to calculate the PHT’s revenue figures. The $56 million non-operating loss amount included in the bond offering’s official statement was generated by the budget department using stale cash collection numbers amid the known problems with the new billing system. The budget department was not updating its collection rates in a timely fashion due to a lack of adequate communication among departments. Therefore, the PHT lacked a reasonable basis for its loss projection, and the official statement was materially misleading.

The SEC’s order also found that the PHT failed to properly account for a December 2008 arbitration award that negatively impacted patient accounts receivable in its 2008 audited financial statements that were attached to the bond offering’s official statement. The arbitration award required the PHT to pay a third-party receivables company $3.9 million in cash, and transfer to the company $360 million face amount of existing accounts receivable and $250 million face amount of future accounts receivable. The PHT failed to perform an analysis to determine the value of the replacement accounts receivable awarded to the third-party company. The analysis is required under the relevant accounting standards in order to evaluate whether to accrue an expense related to the arbitration award or disclose the arbitration award in the notes to its financial statements. Without the proper analysis, the PHT failed to accurately account for the arbitration award in the audited financial statements.

The SEC’s order directs the PHT to cease and desist from committing or causing any violations of Sections 17(a)(2) and (3) of the Securities Act of 1933. The PHT neither admitted nor denied the SEC’s findings. The Commission determined not to impose a monetary penalty due to the PHT’s current financial condition. The Commission also considered the PHT’s cooperation with the investigation and the remedial measures undertaken.

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With extensive courtroom, arbitration and mediation experience and an in-depth understanding of securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

“Hedge fund” is a general, non-legal term used to describe private, unregistered investment pools that traditionally have been limited to sophisticated, wealthy investors. Hedge funds are not mutual funds and, as such, are not subject to the numerous regulations that apply to mutual funds for the protection of investors – including regulations requiring a certain degree of liquidity, regulations requiring that mutual fund shares be redeemable at any time, regulations protecting against conflicts of interest, regulations to assure fairness in the pricing of fund shares, disclosure regulations, regulations limiting the use of leverage, and more.

“Funds of hedge funds” are nvestment companies that invest in hedge funds. Some, but not all, register with the SEC and file semi-annual reports. They often have lower minimum investment thresholds than traditional, unregistered hedge funds and can sell their shares to a larger number of investors. Like hedge funds, funds of hedge funds are not mutual funds. Unlike open-end mutual funds, funds of hedge funds offer very limited rights of redemption. And, unlike ETFs, their shares are not typically listed on an exchange.

If you have invested in a hedge fund, it is important to review the periodic information that is supplied. If you are supposed to receive certified financial statements from the hedge fund and they are not provided timely, you should consider this a huge “red” flag and take immediate steps to investigate this situation further.

Please keep in mind that the above information is being provided for educational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon as legal or investment advice. If you have any questions concerning the contents of this post, you should contact a qualified professional.

Contact Us:

With extensive courtroom, arbitration and mediation experience and an in-depth understanding of securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

The Cash Basis accounting method recognizes revenues when cash is received and recognizes expenses when cash is paid out. In contrast, the Accrual Method of accounting recognizes revenues when goods or services are sold and recognizes expenses when obligations are incurred. A third method, called Modified Cash Basis uses accrual accounting for long-term assets and is the basis usually referred to when the term cash basis is used.

Please keep in mind that the above information is being provided for educational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon as legal or investment advice. If the reader has any questions concerning the contents of this post, you should contact a qualified professional.

Contact Us:

With extensive courtroom, arbitration and mediation experience and an in-depth understanding of accounting, business and securities laws, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

Court Enters Final Judgments against JBI, Inc. and Former Officer in Accounting Fraud Case

The Securities and Exchange Commission announced that a Massachusetts federal court entered final judgments by consent on June 26, 2013 and March 20, 2013, respectively, against John W. Bordynuik (“Bordynuik”) and JBI, Inc. (“JBI”), two defendants in a fraud action filed by the Commission in 2012. The Commission alleged in its complaint that JBI, its then CEO, John Bordynuik, and its former CFO, Ronald Baldwin, Jr. (“Baldwin”), engaged in a scheme to commit securities and accounting fraud in 2009. In the consent judgments, the Court ordered JBI to pay $150,000 and Bordynuik to pay $110,000 in civil monetary penalties.

The Commission filed its action on January 4, 2012, alleging that during two reporting periods in 2009 and in contravention of Generally Accepted Accounting Principles (“GAAP”), JBI stated materially false and inaccurate financial information on its financial statements. The Complaint alleged that the defendants misrepresented and overstated the actual value of certain assets, known as media credits, by almost 1,000%, in an effort to bolster its balance sheet. JBI then used the overvalued financial statements in two private capital raising efforts (Private Investment in Public Equity or PIPES) that raised over $8.4 million from unwitting investors in these PIPES just before the company issued a public statement indicating its financial statements could no longer be relied upon, in part, due to the erroneous valuation of the media credits and other assets on the balance sheet. According to the complaint, Bordynuik was aware of, or was reckless in not being aware of, GAAP concerns surrounding the reported value of the media credits in advance of the company’s periodic reports that included the financial statements filed with the Commission, yet falsely certified that the company’s financial statements for those reporting periods were filed in conformity with GAAP.

Without admitting or denying the allegations in the Commission’s complaint, JBI and Bordynuik consented to final judgments entered by the Court. The final judgment against JBI permanently enjoined the company from violating Section 17(a) of the Securities Act of 1933 (“Securities Act”) and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13 thereunder, and ordered JBI to pay a civil monetary penalty of $150,000. The final judgment against Bordynuik permanently enjoined him from violating Section 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13a-14, 13b2-1 and 13b2-2 thereunder, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-11, and ordered him to pay a civil penalty of $110,000. Bordynuik also was barred for five years (from March 18, 2013) from acting as an officer or director of a public company. The case against the remaining defendant (Baldwin) remains pending. [SEC v. JBI, Inc., John Bordynuik and Ronald Baldwin, Jr., C.A. No. 1:12-cv-10012 (USDC, MA)]

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With extensive courtroom, arbitration and mediation experience and an in-depth understanding of securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

The Securities and Exchange Commission recently charged a China-based petrochemical company and its former chief financial officer with accounting and disclosure violations, and they agreed to pay more than $1 million combined to settle the charges.

The SEC alleges that Keyuan Petrochemicals, which was formed through a reverse merger in April 2010, systematically failed to disclose to investors numerous related party transactions involving its CEO, controlling shareholders, and entities controlled by management or their family members. Keyuan also operated a secret off-balance sheet cash account to pay for cash bonuses to senior officers, travel and entertainment expenses and an apartment rental for the CEO, and cash and non-cash gifts to Chinese government officials.

The SEC further alleges that Keyuan’s then-CFO Aichun Li, who lives in North Carolina, played a role in the company’s failure to disclose the related party transactions. Li was hired to ensure the company’s compliance with U.S. accounting and financial reporting regulations, and she received information and encountered red flags that should have indicated that the company was not properly identifying or disclosing related party transactions. Despite such knowledge, Li signed Keyuan’s registration statements and quarterly reports that failed to disclose material related party transactions.

According to the SEC’s complaint filed in federal court in Washington D.C., the related party transactions that Keyuan failed to disclose between May 2010 and January 2011 in accordance with U.S. Generally Accepted Accounting Principles (GAAP) included sales of products, purchases of raw materials, loan guarantees, and short-term financing. As a consequence of using an off-balance sheet cash account, the company’s reported balances in its financial statements for cash, receivables, construction-in-progress, interest income, other income, and general and administrative expenses were misstated. In October 2011, Keyuan filed restatements of the financial statements contained in its Form 10-Qs for the second and third quarters of 2010 that disclosed the related party transactions and off-balance sheet accounting for the first time.

The SEC’s complaint charges Keyuan with violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934, and Rules 12b-20 and 13a-13 under the Exchange Act. The SEC’s complaint charges Li with violations of Section 13(b)(5) of the Exchange Act and aiding and abetting Keyuan’s violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13.

Keyuan agreed to pay a $1 million penalty and Li agreed to pay a $25,000 penalty to settle the SEC’s charges. They consented to the entry of a judgment permanently enjoining them from violations of the respective provisions of the Securities Act and Exchange Act. Li also agreed to be suspended from appearing or practicing as an accountant before the Commission with the right to apply for reinstatement after two years. The proposed settlement, in which Keyuan and Li neither admit nor deny the charges, is subject to court approval.

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With extensive courtroom, arbitration and mediation experience and an in-depth understanding of securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

SEC Charges Three Former Senior Officers of Commonwealth Bank With Understating Losses and Material Misstatements During Financial Crisis

The Securities and Exchange Commission today charged three former bank executives in Virginia for understating millions of dollars in losses and masking the true health of the bank’s loan portfolio at the height of the financial crisis.

The SEC alleges that Edward J. Woodard, Jr., who was the CEO, President and Chairman of the Board at Norfolk, Virginia-based Bank of the Commonwealth and its publicly-traded parent, Commonwealth Bankshares, along with Chief Financial Officer and Secretary Cynthia A. Sabol, a CPA, and Executive Vice President and Commercial Loan Officer Stephen G. Fields understated the bank’s loan-related losses as well as losses on real estate repossessed by the bank (other real estate owned or OREO).

The SEC’s complaint alleges that, from in or about November 2008 through August 2010, the consistent message in Commonwealth’s SEC filings and public statements was that its portfolio of loans, which comprised approximately 94% and 81% of the company’s total assets in 2008 and 2009, respectively, was conservatively managed according to strict underwriting standards aimed at keeping Commonwealth’s reserved losses low during a time of unprecedented economic turmoil. In reality, internal practice deviated so much from what the investing public was told that, from November 2008 through August 2010, Commonwealth understated its ALLL by approximately 17% to 25% with a corresponding understatement to its reported loss before income taxes for fiscal year 2008 of approximately 64%; understated its OREO in two quarters by approximately 19% to 20%, which resulted in a corresponding understatement of Commonwealth’s reported loss before income taxes in the first quarter of 2010 of approximately 35%; and underreported its total non-performing loans throughout the entire period by at least 30%.

The SEC’s complaint further alleges that Woodard, as CEO, knew of the true state of Commonwealth’s loan portfolio, was involved in the activity to hide the deterioration of many of the loans at issue and was responsible for the misleading public statements and in particular those in earnings releases. Sabol, as CFO, knew of the activity to mask the problems with the company’s loan portfolio and the corresponding effect these masking practices had on the bank’s financial statements and disclosures, yet signed the disclosures and certified to the investing public that they were accurate. Fields oversaw the bank’s largest portfolio of construction and development loans and was involved in the masking practices.

The SEC’s complaint charges Woodard and Sabol with violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rules 10b-5, 13a-14, 13b2-1 and 13b2-2 thereunder, and aiding and abetting violations of Exchange Act Section 13(a) and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The SEC’s complaint charges Fields with violating Exchange Act Section 13(b)(5) and aiding and abetting violations of Exchange Act Sections 10(b) and 13(a), and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 thereunder.

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With extensive courtroom, arbitration and mediation experience and an in-depth understanding of securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.